Lunch Cum Seminar: Corporate Governance in Hong Kong

「香港企業管治」午餐暨研討會

30 January 2007

Co-organized by 合辦機構 :

HKIoD Corporate Governance Scorecard Project

Research Committee• Coordinator

• Prof. Stephen Y L Cheung (City University of Hong Kong)

• Members• Dr. J. Thomas Connelly (Chulalongkorn University)• Dr. Piman Limpaphayom (Chulalongkorn University)• Ms. Ping Jiang (City University of Hong Kong)

• Research Assistants• Mr. Andy Lau (City University of Hong Kong)• Mr. Chung Cheong Wing(City University of Hong Kong)• Mr. Ho Ka Ho (City University of Hong Kong)• Ms. Jan Chan (City University of Hong Kong)• Ms. Louise Zhang (City University of Hong Kong)• Mr. Patrick Tsang (City University of Hong Kong)

Research Methodologies I

• Survey results based on publicly available information

• HSI, HSHKCI, HSCCI, and HSCEI constituent stocks

• Based on information disclosed in 2005• 174 major companies are covered

Surveyed Companies I (as at 12/2005)

Air china (753)CHALCO (2600) China Power (2380)

CITIC Resources (1205)

Allied Group (373)Chen Hsong Hldgs (57)

China Res Land (1109)

CKI Hldgs (1038)

Angang Newsteel (347)

Cheung Kong (1)China Res Logic (1193)

CLP Hldgs (2)

Anhui Conch (914) China COSCO (1919)China Res Power (836)

CNAC (1110)

ASM Pacific (522)China East Air (670)

China Resources (291)

CNOOC (883)

Bank of E Asia (23)China EB Ltd (165)

China Shenhua (1088)

CNPC (Hong Kong) (135)

Bankcomm (3328)China Insurance (966)

China Ship Dev(1138) COFCO Int’l (506)

Beijing Airport (694)China Life (2628)

China South Air (1055) COSCO Pacific (1199)

Beijing Ent (392)China Mer Hldgs (144) China Telecom (728)

CR Peoplesphone (331)

BOC Hong Kong (2388)

China Mobile (941) China Travel (308) CSCL (2866)

Brilliance Ent (1114) China Netcom (906) China Unicom (762) Dan sing (440)

BYD Co (1211)China Oilfield (2883) Chinese Est H (127)

Dan Sing Banking (2356)

Café de Coral H (341)

China Oversea (688)CIFH (183)

Datang Power (991)

Cathay Pac Air (293) China Phama (1093) CITIC Pacific (267) Denway Motors (203)

Surveyed Companies II (as at 12/2005)

Dynasty Wines

(828) GZI Transport (1052)

Huadian Power (1071)

K. Wah Int'l (173)

Esprit Holdings (330) HAECO (44)

Huaneng Power (902)

Kerry Ppt (683)

FE Consort Int’l (35)Hang Lung Group (10)

Hutch Harb Ring (715)

Kingway Brew (124)

FIH (2038)Hang Lung Ppt (101)

Hutch Telecom (2332)

Kowloon Dev (34)

First Pacific (142)Hang Seng Bank (11)

Hutchison (13) LCH Bank (1111)

Fong's Ind (641) Henderson Inv (97) Hysan Dev (14) Lenovo Group (992)

Fountain Set (420)Henderson Land (12)

i-Cable Comm (1097)Li & Fung (494)

Fubon BK (HK) (636)

HK & China Gas (3) ICBC (Asia) (349)Lifestyle Int’l (1212)

Giordano Int'l (709) HK&S Hotels (45) IDT Int'l (167) Liu Chong Hing (194)

Glorious Sun (393) HK Electric (6) JCG Holdings (626) Luen Thai (311)

Great Eagle H (41)HK Ferry (Hldgs) (50)

Jiangsu Express (177)

Maanshan Iron (323)

Guangdong Inv (270) HKEx (388)

Jiangxi Copper (358) Melco Int’l Dev (200)

Guangshen Rail (525) HKR Int'l (480) Johnson Elec H (179)

Miramar Hotel (71)

Guangzhou Inv (123)

Hopewell Hold (54)K M Bus Hold (62)

MTR Corporation (66)

Guoco Group (53) HSBC Holdings (5) K Wah Cons (27) New World Dev (17)

Surveyed Companies III(as at 12/2005)

Next Media (282)Shanghai Ind H (363)

Solomon Systech (2878)

Vitasoy Int'l (345)

NWS Hldgs (659)Shanghai Pechem (338)

Swire Pacific A (19)Vtech Holdings (303)

OOIL (316) Shangri-la Asia (69) Swire Pacifice B (87)Weiqiao Textile (2698)

Oriental Press (18)Shenzhen Express (548)

TCL Int'l Hold (1070) Wharf Holdings (4)

Pac Centry Ins (65) Shenzhen Int'l (152) Techtronic Ind (669) Wheelock (20)

Pacific Basic (2343)Shenzhen Invest (604)

Texwinca Hold (321) Wheelock Prop (49)

PCCW (8)SHK Ppt (16)

Tianjin Dev (882)Wing Hang Bank (302)

PCPD (432)Shui On Cons (983)

Titan Petrochem (1192) Wing Lung Bank (96)

PetroChina (857) Shun Tak Hold (242)TPV Techonology (903)

Yanzhou Coal (1171)

PICC P&C (2328)Singamas Cont (716) Travelsky Tech (696)

Yizheng Chem (1033)

Ping An (2318) Sino Hotel (1221) Truly Int'l (732) Yue Yuen Ind (551)

Regal Int’l (78)Sino Land (83)

Tsingtao Brew (168)Zhejiang Express (576)

SaSa Int'l (178) Sinopec Corp (386) TVB (511) Zijin Mining (2899)

SCMP Group (583) Sinotrans (598) Varitronix Intl (710)

SH Electric (2727) Smartone Tele (315) Vedan Int’l (2317)

Objectives of Corporate Scorecard for Hong Kong Listed Companies

Encourage adoption of best practiceof corporate governance in Hong Kong through a systematic evaluation of current practices

Define a methodology/ framework to assess corporate governancepractices in Hong Kong

Develop specific criteria and a measurement tool to evaluate individual companies

Set up processes to evaluate corporate governance of Hong Kongcompanies on an annual basis

Hopefully

Research Methodologies II

• Avoids subjectivity bias• Not dependent on companies’ willingness• However, not as rich as an internal

assessment ...• ... and captures only what the companies

released in public and their documentation• Written request was sent to individual

companies. Only a few companies supplied us with full information

Consistency

• Each company was rated by two different members

• The overall results were cross-checked by academics

Scorecard Followed The Five OECD Corporate Governance Principle

• OECD is internationally recognized

• HKEx guidelines comprehensively covered

• 174 public companies surveyed

OECD principleNumber of questions & sub-questions

A. Rights of shareholders

22

B. Equity of shareholders

13

C. Role of stakeholders

9

D. Disclosure and transparency

32

E. Board responsibilities

45

121

Positive Correlation between Good Corporate Governance and Company Valuation

50 55 60 65 70 75 80 85 90 950

1

2

3

4

5

6

7

8

9

10

Corporate Governance Score

MT

BV Correlation=0.05,

Significant at 1% level

Market Valuation by Corporate Governance Entry Quartile

0

0.5

1

1.5

2

2.5

MTBV

1 2 3 4

score

2005 MTBV vs Ranking

1

2

3

4

high low

Improvement of CGI Compared with 2002

Mean of CGI increased by 16.14% compared with year 2002.

Improvement

Frequency

-6-0 10

0-5 23

5-10 40

10-15 36

15-20 18

>20 6

Improvement of CGI compared with 2002

10

23

40

36

18

6

0

5

10

15

20

25

30

35

40

45

-6～0 0～5 5～10 10～15 15～20 >20

Corporate Governance Performance by Indices

HSCCI ( 恒生香港中資企業指數 ) HSCEI ( 恒生中國企業指數 ) HSI ( 恒生指數 ) HSHKCI ( 恒生香港綜合指數 )

Weak

Strong

50

55

60

65

70

75

80

85

90

95

Sco

res

All HSCCIHSCEI

HSI

HSHKCI

Range

Mean

Weak

Strong

50

55

60

65

70

75

80

85

90

95

Sco

res

All HSCCIHSCEI

HSI

HSHKCI

Range

Mean

Weak

Strong

Weak

Strong

50

55

60

65

70

75

80

85

90

95

Sco

res

All HSCCIHSCEI

HSI

HSHKCI

Range

Mean

50

55

60

65

70

75

80

85

90

95

Sco

res

All HSCCIHSCEI

HSI

HSHKCI

Range

Mean

Corporate Governance Performance by Industries

50

55

60

65

70

75

80

85

90

95

Sco

res

Range

Mean

IndustrialAll Properties Finance Utilities ConsolidatedEnterprises

Hotel &Miscellaneous

Weak

Strong

50

55

60

65

70

75

80

85

90

95

Sco

res

Range

Mean

IndustrialAll Properties Finance Utilities ConsolidatedEnterprises

Hotel &Miscellaneous

Weak

Strong

Weak

Strong

Corporate Governance Performance by Categories

A: Rights of Shareholders ( 股東的權利 ) B: Equitable Treatment of Shareholders ( 對股東的公平待遇 ) C: Role of Stakeholders in Corporate Governance ( 利益關係團體在公司治理中扮演的角色 )D: Disclosure and Transparency ( 公開與透明度 )E: Board Responsibilities ( 董事會的責任 )

0

10

20

30

40

50

60

70

80

90

100

Sco

res

All A B

C

D

E

RangeMean

0

10

20

30

40

50

60

70

80

90

100

Sco

res

All A B

C

D

E

RangeMean

A. Rights of Shareholders ( 股東的權利 )

Improvements:• Improve the quality of Notice to

Call Shareholders Meeting• Attendance of all Board

members, Esp. Board Committee Chairs

92.63

49.19

71.47

B. Equitable Treatment of Shareholders( 對股東的公平待遇 )

Improvements:• Allow minority shareholders to

influence the Board• To use cumulative voting in the

election of board members• To facilitate voting by proxy

95.16

51.61

71.01

C. Role of Stakeholders in Corporate Governance( 利益關係團體在公司治理中扮演的角色 )

Improvements:• Disclose more details on

the role of supplier/business partner

• Give more details on the environment issue in its public communication 40.21

8.1

95.71

D. Disclosure and Transparency( 公開與透明化 )

Improvements:• The information in website’s

• Shareholding structure • Organization structure

• To Disclose the management’s shareholding

• Communication with public • Analyst briefing (s)• Press conference (s)/ press

briefing

98.77

72.71

89.47

E. Board Responsibilities( 董事會的責任 )

Improvements:• Separate the role of the

chairman and CEO• A set of writing the code of

ethics • Setting up the Nomination

Committee • Role and responsibilities• Performance and meeting

98.99

31.18

69.50

Results

• NOT finger-pointing exercise• Important input for policy-makers,

companies, and the public • Score for individual companies will not

be made public• Feedback report can be obtained for

individual companies

Ten Best Performing Companies in Corporate Governance Score (by alphabetical order)

• BOC Hong Kong (2388)• CLP Hldgs (2)• HKEX (388)• HSBC Hldgs (5)• Hang Seng Bank (11)• Hysan Development (14)• Li & Fung (494)• MTR Corporation (66)• Shenzhenexpress (548)• Solomon Systech (2878)

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